Does the Import Invasion Explain the Mysterious Disappearance of Productivity Growth in U.S. Manufacturing?

Why did U.S. manufacturing productivity stop growing after 2010? Productivity growth disappeared, evaporating from an annual rate of +3.3 percent during 1987-2010 to -0.3 percent from 2010 to 2023. This paper shifts attention from 2010 as the start of the puzzle to a decade earlier when output stopped growing. This cessation of output growth in 2000 is attributed to the invasion of imports that closed domestic plants, destroyed jobs, and squeezed profits. Then followed a chain of causation that ultimately undermined productivity growth – from falling capacity utilization, to lower investment in fixed capital and R&D, and to an erosion of innovation. Beyond the import invasion, the paper identifies a set of handicaps ranging from self-inflicted wounds by private manufacturing firms to a marked reduction in government-funded R&D spending. Corporate funds were diverted from productive investment to share buybacks. Investment was distorted by environmental, health, safety, and fuel economy regulations. Innovation slowed not only because of diminishing returns to R&D, but also because of a decline in public R&D, and a diversion of private R&D from basic science and process improvements to product refinements and brand extensions. Skilled worker shortages have plagued manufacturing for decades in the absence of sufficient public and private investment in vocational training.